E-bus demand surpasses target, states may have to settle for less

The Centre has already received requests for over 15,000 e-buses from various states under the Prime Minister’s E-drive scheme against the targeted 14,028 units, the people quoted earlier said on the condition of anonymity. 

Maharashtra, West Bengal, and Tamil Nadu are yet to submit their demand for e-buses in Mumbai, Pune, Kolkata, and Chennai, said one of the people quoted earlier.

“The government is still awaiting clarity on demands from some cities, which will make the total demand even higher. The number of buses to be tendered in each city may have to be lowered," said this person. 

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The number of electric buses sold in the country fell 5.7% on-year to 3,314 in FY25, the Vahan portal data showed. Mint reported on 16 March 2025 that the adoption of electric buses in FY25 at 4.72% was the lowest since 9.34% in FY22. But the response from states this year suggests a pick-up in demand.

The overwhelming response to the scheme “demonstrates that public transport stakeholders are willing to transition to zero-emission fleets if adequate financial support systems are in place", said Dhiraj Agarwal, chief business officer at Mufin Green Finance, which lends to businesses and individuals for electric vehicle purchases.

₹4,400 crore outlay for FY26

The government has allocated about 40% of its ₹10,900-crore PM E-drive outlay to subsidize e-buses. This allocation of nearly ₹4,400 crore—to be spent till FY26—is aimed at bolstering intra-city green mobility in nine cities with populations above 4 million. These include New Delhi, Mumbai, Bengaluru, Hyderabad, Chennai, Kolkata, Ahmedabad, Surat, and Pune. 

Manufacturers receive incentives for selling electric two- or three-wheelers. They will receive similar subsidy for electric trucks and ambulances after the government notifies production incentives for these categories. 

However, the procedure is more complicated for e-buses. The government first assesses demand from states. Then state or municipal transport utilities receive incentives for procuring e-buses under a gross cost contract or an operational expense (opex) model.

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In a gross cost contract model for e-bus procurement, the bus operator will procure, service, and operate the units for a fixed rate. Under the opex model, the state transport utility will procure the buses and outsource the operations to a third-party operator.

Utilities can then purchase e-buses from manufacturers in a competitive bidding process conducted by state-run Convergence Energy Services Ltd.

CareEgde Ratings Ltd, in an 11 March note, projects annual e-bus sales to hit the 17,000 mark by FY27. The rating firm said this would be driven by a robust subsidy mechanism and a 15-20% lower cost of operating an electric air-conditioned bus than a similar fossil fuel-run unit, the rating firm said. 

“It [growing demand] indicates not just interest, but preparedness among states to deploy zero-emission fleets at scale, supported by clear policy signals from the Centre," said a spokesperson at PMI Electro, adding that the overwhelming response validated the company's long-term investment in electric mobility solutions.

Structured financing required

Agrawal of Mufin Green Finance said lending for electric buses requires special considerations, including government subsidies, to ensure affordability and scalability. “Structured financing mechanisms, such as payment guarantees and viability gap finance, are being adopted to improve bankability," he said, adding that subsidies help bridge the viability gap and make projects more attractive to private financing. 
 
CareEdge also flagged the need for a robust security mechanism to ensure timely payments from state transport utilities. The Union cabinet approved the ₹3,500-crore PM eSewa Payment Security Mechanism (PSM) in September 2024, the same day the PM E-drive scheme was approved. 

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Policy consistency and sustained public-private partnerships will aid electric bus makers to meet demand in the country, said Nishant Arya, vice chairman and managing director, JBM Auto. “Subsidies act as catalyst to kickstart adoption of e-buses, especially in large-scale e-bus deployment projects," Arya told Mint, adding that the payment security mechanism makes e-bus sales bankable even in tier-2 cities.

India has significant e-bus manufacturing capacity, but the ecosystem needs continued scaling and support, the PMI Electro spokesperson said. “Current installed capacity across major OEMs is adequate to meet near-term demand, but rapid scaling will be essential as more cities and states come on board."